Most people qualify for debt elimination bankruptcy. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act introduced an additional hurdle, the means test, which is discussed below. Frankly, Congress intended the means test to dissuade people from filing Chapter 7. But this bankruptcy qualification should not discourage people from filing a necessary Chapter 7.

In as little as nine months, Chapter 7 eliminates most unsecured debts, like medical bills, credit cards, and payday loans. Some unsecured debts, such as back taxes and student loans, are also dischargeable in some cases. With this debt eliminated, families are free to focus their resources on secured debts, like home mortgage payments, and enjoy the benefits of their fresh financial starts.

Formal Qualifications

Many formal qualifications existed before BAPCPA. These rules are usually the same in all jurisdictions throughout America.

No Recent Dismissal or Discharge

Bankruptcy filing abuse was a problem long before 2005. Some unscrupulous people repeatedly file bankruptcy just to frustrate their creditors. By law, these people are ineligible for relief.

So, the Bankruptcy Code sets some objective rules. Filers are ineligible for Chapter 7 if a prior bankruptcy was dismissed in the past 180 days. Common reasons for involuntary dismissal include:

• Bankruptcy fraud,
• Violation of a bankruptcy judge’s order, and
• Failure to cooperate with the trustee (person who oversees the bankruptcy for the judge).

Additionally, a bankruptcy discharge within the last eight years (six years for Chapter 13) makes the filer ineligible to file Chapter 7. The court calculates the time period beginning when the prior bankruptcy started, and not when it ended.

Things get complicated if the debtor uses multiple names. Assume Jim files bankruptcy, he ignores court order, and the bankruptcy is dismissed. Immediately thereafter, Jim’s wife files bankruptcy. Under current rules, she might not be qualified to file Chapter 7.

Individual or Small Business

Corporations, LLCs, and most partnerships cannot file Chapter 7. These entities may seek similar relief under another chapter of the Bankruptcy Code. Individuals, legally married couples, business sole proprietors, and some partners can file Chapter 7. You should probably speak to an attorney about a partnership bankruptcy. These rules are quite complex.

Credit Counselling Class

Prior to filing, all debtors must take a credit counseling class. This class is typically available online. It usually costs only a few dollars and requires only a few minutes. Prior to discharge, debtors must take a similar class.

Means Test

As Congress considered BAPCPA, many lawmakers opined that people used credit cards to purchase luxury items and then filed bankruptcy so they would not have to pay for them. Therefore, BAPCPA includes a rule that Chapter 7 debtors must have annual incomes below the average amount for that family size in that geographic region. As of May 1, 2020, the limit in Georgia for a family of four is $87,317. Coronavirus stimulus payments do not count as income. Neither do PPP loans or any similar relief.

If your income is above this level, do not fret. Some debtors are exempt from the means test. Additionally, once families break down their income and expenses into defined categories, they often pass the means test. If all else fails, Chapter 13 bankruptcy has many of the same benefits as Chapter 7. Chapter 13 has no means of test requirements.

Informal Qualifications

These unwritten rules vary significantly in different jurisdictions. Some of them might not apply at all. But debtors should be aware of them.

Negative Cash Flow

Debtors must list their income on Schedule I and their expenses on Schedule J. If these schedules indicate the debtor is in the black every month, many trustees question the debtor’s need to file Chapter 7. These debtors should expect some pointed questions on this subject during the meeting with the trustee.

Chapter 13 is usually the opposite. Positive cash flow is usually a requirement in these cases. Debtors must show trustees they can manage the monthly debt consolidation payment in Chapter 13.

Significant Need for Discharge

Many debtors voluntarily reaffirm certain debts. “Reaffirmation” simply means they agree to continue making payments although the debt is dischargeable. Most debtors reaffirm secured obligations, like home mortgage payments, and executory contracts, like internet service provider payments. Trustees anticipate these reaffirmations.

However, trustees do not expect debtors to reaffirm things like credit cards and medical bills. If there are more than one or two such reaffirmations, many trustees question the debtor’s need to file bankruptcy. Once again, the debtor should be ready to answer some tough questions on this subject.

Conclusion

While filing a Chapter 7 bankruptcy will eliminate most of your unsecured debts, certain conditions need to be met to become eligible for it. Hopefully, the above points have helped you understand exactly who can file it. Of course, working with an experienced Georgia bankruptcy attorney will help you sail through the entire process more smoothly. If you qualify for Chapter 7, make sure to take advantage of its features and avail of a fresh financial start in your life. 

Contact Our Experienced Chapter 7 Bankruptcy Attorney for the Assistance

Whether you are an individual or a business, if you find yourself struggling with financial difficulties, our seasoned Georgia bankruptcy attorneys can help you. We will work diligently and relentlessly to assist you in obtaining a fresh start. Call us at (706) 843-2905 today to find out how we can help you.

Christopher Ross Morgan

Christopher Ross Morgan

Christopher Ross Morgan focuses on bankruptcy cases, specifically Chapter 7 and Chapter 13 cases. Christopher also takes on Disability and Workers’ Compensation cases. As one of the most accomplished Chapter 7 and Chapter 13 attorneys in Athens, Georgia, he has fought cases through jury trials and argued cases in front of the U.S. District Court, Northern and Middle District of Georgia.